Wednesday, January 1, 2014

Housing Demand finally rising?

Homebuilder analysts at Sterne Agee are optimistic about 2014, saying wider credit availability and an overall growing economy will drive housing demand upward.
"We see 2014 as a positive year for housing starts
and housing turnover with a caveat that the timing of certain financing
catalysts is uncertain," says Jay McCanless, an analyst with the
Birmingham, Ala.-based brokerage firm.
"We believe the notion of continued job growth, the real lack of
housing inventory, and an improving economy as measured by GDP and the
index of leading economic indicators are reasons to invest in the homebuilders."
“We view an expanding financing environment as another potential
catalyst, albeit with an uncertain time line,” McCanless added.
Despite concerns from elsewhere in the industry that interest rates will be inching upward as a result of the QE3 tapering and new qualified mortgage (QM) rules, McCanless foresees there being more, not less residential mortgage financing available."Since the timing of relaxed mortgage underwriting
standards is uncertain, we are forecasting average Y/Y order growth of
8.5% for the upcoming quarter, versus the consensus growth estimate of
11.3%," he says. "For the full-year 2014, our average order growth
estimate of 16.4% (excluding TPH) is almost 230 basis points above the
consensus forecast since we expect financing availability to grow
through the year and create demand."
McCanless also says he doesn’t think the more rigid QM rules will have
as much effect, because mortgage originators are already underwriting to
tighter standards."Current mortgage
underwriting standards are tighter on average than the qualified
mortgage (QM) rule from the Consumer Financial Protection Bureau (CFPB),
which is set for release on January 10, 2014. As of November, the
average debt-to-income (DTI) ratio for completed conforming mortgages
was 41% versus the 43% mandated by the CFPB's QM," he says.
McCanless says that he could not quantify the possible demand increase
if the average DTI rises to 43%, but qualitatively, he anticipates
implementation and a live evaluation of the rules may widen mortgage
availability as originators learn the limits of the new strictures.
McCanless says he thinks homebuilder D.R. Horton (DHI) is particularly well positioned to take advantage of the 15-20% neighborhood growth."We believe the lack of open communities has hindered
sales and unit order growth for several builders during 2013, and we
estimate community count growth could resolve some of these issues," he
says.
Many forecasters expect home price increases will slow to single-digit
percentage increase over the next 12 months, which could shore up sales
and offset the cost of mortgage rate increases to come.
But many are worried that the upswing in housing may be about to stall out, owing as much to outside forces as anything else.
David Blitzer, chairman of the index committee at S&P Dow Jones Indices, has said that monthly numbers are living on borrowed time and the boom is fading fast.
"The key economic question facing housing is the Fed’s future course to
scale back quantitative easing and how this will affect mortgage rates.
Other housing data paint a mixed picture suggesting that we may be
close to the peak gains in prices," Blitzer said.
"However, other economic data point to somewhat faster growth in the
new year. Most forecasts for home prices point to single-digit growth in
2014," he added. To receive personalized rates please email me at eneal@athccorp.com with
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